The Sociology of Markets Neil Fligstein and Luke Dauter Department of Sociology,University of California,Berkeley,California 94720; email:fligst@uclink4.berkelev.edu,luked@berkeley.edu Annu.Rev.Sociol.2007.33:105-28 Key Words First published online as a Review in Advance on April 4,2007 fields,networks,institutions,performativity,culture,politics The Amual Revie of Sociology is online at Abstract http://soc.annualreviews.org The sociology of markets has been one of the most vibrant fields in This article's doi: sociology in the past 25 years.There is a great deal of agreement 10.1146 /annurev.soc.33.040406.131736 that markets are social structures characterized by extensive social Copyright 2007 by Annual Reviews. relationships between firms,workers,suppliers,customers,and gov- All rights reserved ernments.But,like in many sociological literatures,the theory camps 0360-0572/07/0811-0105S20.00 that have formed often seem to speak by each other.We show that some of the disagreement between theory camps is due to differ- ences in conceptual language,and other disagreements stem from the fact that theory camps ignore the concepts in other theory camps, thereby making their theories less complete.We end by considering deeper controversies in the literature that seem open both to new conceptualization and further empirical research. I05
ANRV316-SO33-06 ARI 24 May 2007 10:6 The Sociology of Markets Neil Fligstein and Luke Dauter Department of Sociology, University of California, Berkeley, California 94720; email: fligst@uclink4.berkeley.edu, luked@berkeley.edu Annu. Rev. Sociol. 2007. 33:105–28 First published online as a Review in Advance on April 4, 2007 The Annual Review of Sociology is online at http://soc.annualreviews.org This article’s doi: 10.1146/annurev.soc.33.040406.131736 Copyright c 2007 by Annual Reviews. All rights reserved 0360-0572/07/0811-0105$20.00 Key Words fields, networks, institutions, performativity, culture, politics Abstract The sociology of markets has been one of the most vibrant fields in sociology in the past 25 years. There is a great deal of agreement that markets are social structures characterized by extensive social relationships between firms, workers, suppliers, customers, and governments. But, like in many sociological literatures, the theory camps that have formed often seem to speak by each other. We show that some of the disagreement between theory camps is due to differences in conceptual language, and other disagreements stem from the fact that theory camps ignore the concepts in other theory camps, thereby making their theories less complete. We end by considering deeper controversies in the literature that seem open both to new conceptualization and further empirical research. 105 Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only.
O bow they cling and wrangle,some wbo claim their attempts to understand the origins,op- For preacber and monk the bonored name! erations,and dynamics of markets as social For,quarreling,eacb to bis view they cling. structures,the primary perspectives that have Such folk see only one side of a thing. emerged tend to remain separate and distinct at the theoretical level.Much like the blind (from the text of Jain and Buddhist origin, Udana 68-69,"Parable of the Blind Men and monks and preachers who fail to see the whole the Elephant") of the elephant in Buddha's famous parable, scholars have often focused on a particular so- cial aspect of markets and acted as if it was a INTRODUCTION more general understanding. The sociology of markets has been one of the This theoretical separateness produces most vibrant fields in sociology in the past two problems.First,because many scholars 25 years.!Starting with a trickle of empiri- use similar concepts but identify them by cal and theoretical papers,it has grown to a different terms,confusion results about the river.One of the seminal pieces in the field, degree to which people are saying different Granovetter's(1985)"Economic Action and things.For example,most scholars,regardless Social Structure:The Problem of Embedded- of their approach,believe that culture(shared ness"has been cited over 2500 times since its meanings,normative understandings,identi- publication,making it the most cited paper in ties,local practices)plays an important role sociology in the postwar era.2 Although so- in market projects.Much of this conceptual ciologists have made significant progress in overlap is hidden by the use of jargon (for ex- ample,the use ofterms like frames,logics,per- We want to distinguish the sociology of markets from formativity,scripts,conceptions of control,or the broader project of economic sociology(Fligstein 2001). local knowledge).Thus,scholars who purport Following Polanyi(1957),economic sociology is the gen- eral study of the conditions of the production and repro- to approach their subject matter from a partic- duction of social life.Such a study would include studies ular perspective actually share concepts with of consumption,the family,and the links between states a wide variety of other scholars. and houscholds,schooling,and economic life more broadly (Smelser Swedberg 2005,p.3).The sociology of markets Second,to the degree that scholars are refers more narrowly to the study of one kind of social ex- really saying different things,assessing how change,that of markets,and to the structuring of that kind much their theoretical views are complemen- of social exchange,under the conditions we call capitalist This focus includes the study of firms,product markets,and tary or contradictory is difficult.When one labor markets as well as their broader linkages to suppliers, viewpoint complements another,theory is ad- workers,and states and the role of local cultures (i.e.,local vanced.Taking into account other possible el- in the sense of belonging to a particular market),systems of meanings insofar as they influence what products are,and ements in the social structuring of markets the role of morality in the generation of particular kinds of yields a more complete view of market pro- markets. cesses.But when theories contradict,scholars 2Recently Jerry Jacobs (2005)calculated the most cited need to understand why their perspectives dif- papers in the American Sociological Revie in the postwar era.The paper with the most citations was DiMaggio fer and how those differences can be usefully Powell's(1983)"Institutional Isomorphism"paper,with explored to further both theory and research. 1700 citations.Granovetter's paper appeared in the Amer- The primary purpose of this review is to be- ican fournal of Sociology and,as far as we know,no one has created a similar list for that journal.But,with almost gin to untangle the theoretical and empirical 2500 citations,it is hard to believe that many papers outdid work on the sociology of markets,clarifying Granovetter's.It should also be noted that the DiMaggio what we know and where scholars really dis- Powell paper has greatly influenced the sociology of mar- kets as well.We argue that this paper has greatly influenced agree. at least one strain of thought in the sociology of markets The literature (and the way that peo- (i.e.,institutional theory).If one takes both of these pa- ple teach their graduate courses)has of- pers as part of the foundation of the field,arguably the two most cited papers in the postwar era are at the core of the ten been divided into three theory groups sociology of markets. (Fourcade-Gourinchas 2007)according to I06 Fligstein·Dauter
ANRV316-SO33-06 ARI 24 May 2007 10:6 O how they cling and wrangle, some who claim For preacher and monk the honored name! For, quarreling, each to his view they cling. Such folk see only one side of a thing. (from the text of Jain and Buddhist origin, Udana 68–69, “Parable of the Blind Men and the Elephant”) INTRODUCTION The sociology of markets has been one of the most vibrant fields in sociology in the past 25 years.1 Starting with a trickle of empirical and theoretical papers, it has grown to a river. One of the seminal pieces in the field, Granovetter’s (1985) “Economic Action and Social Structure: The Problem of Embeddedness” has been cited over 2500 times since its publication, making it the most cited paper in sociology in the postwar era.2 Although sociologists have made significant progress in 1We want to distinguish the sociology of markets from the broader project of economic sociology (Fligstein 2001). Following Polanyi (1957), economic sociology is the general study of the conditions of the production and reproduction of social life. Such a study would include studies of consumption, the family, and the links between states and households, schooling, and economic life more broadly (Smelser & Swedberg 2005, p. 3). The sociology of markets refers more narrowly to the study of one kind of social exchange, that of markets, and to the structuring of that kind of social exchange, under the conditions we call capitalist. This focus includes the study of firms, product markets, and labor markets as well as their broader linkages to suppliers, workers, and states and the role of local cultures (i.e., local in the sense of belonging to a particular market), systems of meanings insofar as they influence what products are, and the role of morality in the generation of particular kinds of markets. 2Recently Jerry Jacobs (2005) calculated the most cited papers in the American Sociological Review in the postwar era. The paper with the most citations was DiMaggio & Powell’s (1983) “Institutional Isomorphism” paper, with 1700 citations. Granovetter’s paper appeared in the American Journal of Sociology and, as far as we know, no one has created a similar list for that journal. But, with almost 2500 citations, it is hard to believe that many papers outdid Granovetter’s. It should also be noted that the DiMaggio & Powell paper has greatly influenced the sociology of markets as well. We argue that this paper has greatly influenced at least one strain of thought in the sociology of markets (i.e., institutional theory). If one takes both of these papers as part of the foundation of the field, arguably the two most cited papers in the postwar era are at the core of the sociology of markets. their attempts to understand the origins, operations, and dynamics of markets as social structures, the primary perspectives that have emerged tend to remain separate and distinct at the theoretical level. Much like the blind monks and preachers who fail to see the whole of the elephant in Buddha’s famous parable, scholars have often focused on a particular social aspect of markets and acted as if it was a more general understanding. This theoretical separateness produces two problems. First, because many scholars use similar concepts but identify them by different terms, confusion results about the degree to which people are saying different things. For example, most scholars, regardless of their approach, believe that culture (shared meanings, normative understandings, identities, local practices) plays an important role in market projects. Much of this conceptual overlap is hidden by the use of jargon (for example, the use of terms like frames, logics, performativity, scripts, conceptions of control, or local knowledge). Thus, scholars who purport to approach their subject matter from a particular perspective actually share concepts with a wide variety of other scholars. Second, to the degree that scholars are really saying different things, assessing how much their theoretical views are complementary or contradictory is difficult. When one viewpoint complements another, theory is advanced. Taking into account other possible elements in the social structuring of markets yields a more complete view of market processes. But when theories contradict, scholars need to understand why their perspectives differ and how those differences can be usefully explored to further both theory and research. The primary purpose of this review is to begin to untangle the theoretical and empirical work on the sociology of markets, clarifying what we know and where scholars really disagree. The literature (and the way that people teach their graduate courses) has often been divided into three theory groups (Fourcade-Gourinchas 2007) according to 106 Fligstein · Dauter Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
whether scholars use (a)networks(Burt 1992; come to be created and sold,and in how the Granovetter 1974,2005;White 1981,2002), local cultures of particular markets form what (b)institutions(Dobbin 1994;Fligstein 1990, institutionalists call the institutionalization of 2001;Powell DiMaggio 1991),or (c)perfor- particular markets. mativity (Beunza Stark 2004,Callon 1998, Although these three approaches encom- Callon Muniesa 2005,MacKenzie Milo pass a large portion of the work done in the 2003,MacKenzie 2005)as explanatory mech- sociology of markets,they are by no means anisms in the emergence and ongoing dynam-exhaustive.Along with considering these par- ics of markets.Scholars in the network tradi-ticular perspectives with the goal ofextracting tion have focused on relational ties between what sociologist have learned about markets actors as the material ofsocial structure.Insti-and what remains to be resolved,we consider tutionalists focus on how cognition and action in this review the degree to which the differ- are contextualized by market rules,power,and ent theory groups offer incomplete represen- norms.The performative school of thought tations of the social structuring of markets. views economic action as a result of calculative The division of the field into networks,in- processes involving the specific technologies stitutions,and performativity excludes other and artifacts that actors employ. theoretical perspectives that should also be at This division of the field overemphasizes the core of thinking about markets as social the extent to which these perspectives are structures.We focus on two important ap- in fact separate theory groups.All three ap- proaches that have been underplayed in the proaches rely on viewing markets as social are- literature:political economy and population 宝 nas where firms,their suppliers,customers, ecology. workers,and government interact,and all Political economy has pioneered thinking three approaches emphasize how the connect- about the linkages between states,law,and 的 edness of social actors affects their behavior. markets and the historical emergence of sys- Network analysis is a technique for finding tems of governance.The literature on the social structures in relational data.It is not a comparative study of capitalist arrangements 1002 theory of the underlying relationships in the and their effects on various outcomes,includ- data and the mechanisms that they represent.ing economic development,is part and par- Scholars who use network techniques invoke cel of the sociology of markets.Institutional 2 theoretical constructs like power,resource de- theory is the approach that most frequently pendence,cooptation,information,and trust adds political economy into its analyses.It to explain the social structures that emerge focuses on the role of governments and law from their analyses.These mechanisms are in the creation of particular features of mar- common to institutional theory and to other kets,for example the types of alliances and theories relevant to the sociology of markets. forms of cooperation that are legal or forms of Institutional theorists are interested in how property rights(Campbell Lindberg 1990, field-level phenomena diffuse to make fields Carruthers Ariovich 2004).But network isomorphic,often through social networks theorists and scholars interested in perfor- (Davis 1991).Performativists have explicitly mativity have generally ignored the possible connected their approach to network theory effects of government and law and the role in what Callon(1998)calls the actor-network of preexisting relationships between the own- approach.The actor-network approach views ers of firms,managers,workers,and govern- notonly humans,butalso objects andartifacts,ments on market processes.This makes their techniques,and ideas as agents embedded in accounts of particular markets incomplete networks of calculative relations.In addition, Population ecology is the branch of or- performative approaches overlap with institu- ganizational theory that deals most directly tional theory in their interest in how products with the effects of competition on the www.anmalreviews.org The Sociology of Markets I07
ANRV316-SO33-06 ARI 24 May 2007 10:6 whether scholars use (a) networks (Burt 1992; Granovetter 1974, 2005; White 1981, 2002), (b) institutions (Dobbin 1994; Fligstein 1990, 2001; Powell & DiMaggio 1991), or (c) performativity (Beunza & Stark 2004, Callon 1998, Callon & Muniesa 2005, MacKenzie & Milo 2003, MacKenzie 2005) as explanatory mechanisms in the emergence and ongoing dynamics of markets. Scholars in the network tradition have focused on relational ties between actors as the material of social structure. Institutionalists focus on how cognition and action are contextualized by market rules, power, and norms. The performative school of thought views economic action as a result of calculative processes involving the specific technologies and artifacts that actors employ. This division of the field overemphasizes the extent to which these perspectives are in fact separate theory groups. All three approaches rely on viewing markets as social arenas where firms, their suppliers, customers, workers, and government interact, and all three approaches emphasize how the connectedness of social actors affects their behavior. Network analysis is a technique for finding social structures in relational data. It is not a theory of the underlying relationships in the data and the mechanisms that they represent. Scholars who use network techniques invoke theoretical constructs like power, resource dependence, cooptation, information, and trust to explain the social structures that emerge from their analyses. These mechanisms are common to institutional theory and to other theories relevant to the sociology of markets. Institutional theorists are interested in how field-level phenomena diffuse to make fields isomorphic, often through social networks (Davis 1991). Performativists have explicitly connected their approach to network theory in what Callon (1998) calls the actor-network approach. The actor-network approach views not only humans, but also objects and artifacts, techniques, and ideas as agents embedded in networks of calculative relations. In addition, performative approaches overlap with institutional theory in their interest in how products come to be created and sold, and in how the local cultures of particular markets form what institutionalists call the institutionalization of particular markets. Although these three approaches encompass a large portion of the work done in the sociology of markets, they are by no means exhaustive. Along with considering these particular perspectives with the goal of extracting what sociologist have learned about markets and what remains to be resolved, we consider in this review the degree to which the different theory groups offer incomplete representations of the social structuring of markets. The division of the field into networks, institutions, and performativity excludes other theoretical perspectives that should also be at the core of thinking about markets as social structures. We focus on two important approaches that have been underplayed in the literature: political economy and population ecology. Political economy has pioneered thinking about the linkages between states, law, and markets and the historical emergence of systems of governance. The literature on the comparative study of capitalist arrangements and their effects on various outcomes, including economic development, is part and parcel of the sociology of markets. Institutional theory is the approach that most frequently adds political economy into its analyses. It focuses on the role of governments and law in the creation of particular features of markets, for example the types of alliances and forms of cooperation that are legal or forms of property rights (Campbell & Lindberg 1990, Carruthers & Ariovich 2004). But network theorists and scholars interested in performativity have generally ignored the possible effects of government and law and the role of preexisting relationships between the owners of firms, managers, workers, and governments on market processes. This makes their accounts of particular markets incomplete. Population ecology is the branch of organizational theory that deals most directly with the effects of competition on the www.annualreviews.org • The Sociology of Markets 107 Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
production of markets.Scholars who use this pendence or mediate competition.But other approach have drawn on network or institu- scholars who view the links between produc- tional analyses (Baron et al.1999,Haveman ers and consumers as pivotal to the produc- Rao 1997).But population ecology has tion of markets emphasize the role of trust and not figured into the core of the sociology of culture(i.e.,commonly held meanings about markets,primarily because it has developed the product,its morality,and its usefulness) a vocabulary and set of methods that do not in those relationships as key to understand- easily translate into many of the current ap-ing market processes.Granovetter(1985)ar- proaches to social structure.This is unfortu- gued early on that the main purpose of em- nate because several developments in popula- beddedness in markets was that it increased tion ecology have paralleled those in the other the trust between buyers and sellers.Zelizer approaches.We show how many ideas in pop-has taken the relationship between produc- ulation ecology have been expressed in a dif-ers and consumers in a different direction. ferent language in the other points of view Her argument is that consumers must be con- and argue that the insights of population ecol-vinced not just of the utility of the products ogy should be added more explicitly to schol-they buy and the trustworthiness of those who arly thinking about the social structuring of sell them,but also of the morality of the prod- markets. uct(Zelizer 1983,1994,1997).Her more cul- After one notes the similar ideas that run tural approach alerts scholars to the problem through the literature,including the less rec-of framing products so that consumers find ognized areas of contribution,there remain them not just useful,but in concert with their a number of interesting problems that stem values. from theoretical differences.Scholars in the A third source of disagreement is that performative tradition have presented their some scholars view market structures as either perspective as a critique of the predominant emergent or in equilibrium,whereas others sociological modes of understanding markets. argue that markets are always changing.The Their basic idea is that economic action is possibility for a sociological definition of mar- about calculation,and that how the qualities ket equilibrium is intriguing.White(1981), of goods are calculated (i.e.,the amenability of for example,has defined a market as a"repro- goods to calculation,the calculative capacities ducible role structure."This idea implies that of actors,and the interaction between them the social processes that occur when a market in the act of exchange)is crucial to under-is formed are different from the social pro- standing market structure.These scholars ar-cesses that occur once a more stable set of so- gue that the tools actors have at their disposal cial relationships appear.Population ecology to interpret and define their economic worlds has an implied theory of what could be called and how they organize interaction over ex- punctuated equilibrium.At the beginning of change are created by and enact ideas about markets,there is often a period of turmoil how economic activity should and does oper-and change followed by some stasis and per- ate.We interpret the performative argument haps a second period of turmoil.The alterna- as an attempt to insert cultural understandings tive view is that markets are always fluid,with of actors into the core of the social construc- products,processes,and advantage constantly tion of markets. shifting.Here,equilibrium solutions to the A second disagreement focuses on link-problem of what other market actors will do ages between producers and consumers.Many never form (Nelson Winter 1982).These analyses of markets focus exclusively on pro- different views of market dynamics are impor- ducers and their competitive relationships. tant because they imply very different ways of Here,attention is given to how social struc- looking at the social structuring of a market. tures resolve the myriad forms of resource de- On the one hand,if actors trying to find a place Fligstein·Dauter
ANRV316-SO33-06 ARI 24 May 2007 10:6 production of markets. Scholars who use this approach have drawn on network or institutional analyses (Baron et al. 1999, Haveman & Rao 1997). But population ecology has not figured into the core of the sociology of markets, primarily because it has developed a vocabulary and set of methods that do not easily translate into many of the current approaches to social structure. This is unfortunate because several developments in population ecology have paralleled those in the other approaches. We show how many ideas in population ecology have been expressed in a different language in the other points of view and argue that the insights of population ecology should be added more explicitly to scholarly thinking about the social structuring of markets. After one notes the similar ideas that run through the literature, including the less recognized areas of contribution, there remain a number of interesting problems that stem from theoretical differences. Scholars in the performative tradition have presented their perspective as a critique of the predominant sociological modes of understanding markets. Their basic idea is that economic action is about calculation, and that how the qualities of goods are calculated (i.e., the amenability of goods to calculation, the calculative capacities of actors, and the interaction between them in the act of exchange) is crucial to understanding market structure. These scholars argue that the tools actors have at their disposal to interpret and define their economic worlds and how they organize interaction over exchange are created by and enact ideas about how economic activity should and does operate. We interpret the performative argument as an attempt to insert cultural understandings of actors into the core of the social construction of markets. A second disagreement focuses on linkages between producers and consumers. Many analyses of markets focus exclusively on producers and their competitive relationships. Here, attention is given to how social structures resolve the myriad forms of resource dependence or mediate competition. But other scholars who view the links between producers and consumers as pivotal to the production of markets emphasize the role of trust and culture (i.e., commonly held meanings about the product, its morality, and its usefulness) in those relationships as key to understanding market processes. Granovetter (1985) argued early on that the main purpose of embeddedness in markets was that it increased the trust between buyers and sellers. Zelizer has taken the relationship between producers and consumers in a different direction. Her argument is that consumers must be convinced not just of the utility of the products they buy and the trustworthiness of those who sell them, but also of the morality of the product (Zelizer 1983, 1994, 1997). Her more cultural approach alerts scholars to the problem of framing products so that consumers find them not just useful, but in concert with their values. A third source of disagreement is that some scholars view market structures as either emergent or in equilibrium, whereas others argue that markets are always changing. The possibility for a sociological definition of market equilibrium is intriguing. White (1981), for example, has defined a market as a “reproducible role structure.” This idea implies that the social processes that occur when a market is formed are different from the social processes that occur once a more stable set of social relationships appear. Population ecology has an implied theory of what could be called punctuated equilibrium. At the beginning of markets, there is often a period of turmoil and change followed by some stasis and perhaps a second period of turmoil. The alternative view is that markets are always fluid, with products, processes, and advantage constantly shifting. Here, equilibrium solutions to the problem of what other market actors will do never form (Nelson & Winter 1982). These different views of market dynamics are important because they imply very different ways of looking at the social structuring of a market. On the one hand, if actors trying to find a place 108 Fligstein · Dauter Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
in a market can collectively produce equilib- whether a particular set of social structures rium,then the goal of actors in this market protects incumbents or,rather,fosters eco- becomes the preservation of that order.This nomic growth and competition. implies relationships of power and domina- In this review,we discuss the intellectual tion in markets.On the other hand,if firms are roots of the sociology of markets and how the resigned to live in a world where reproducing field evolved from problems posed in nearby one's position is not possible,then social re-fields.We then examine the crystallization of lationships become temporary arrangements the major ideas in the sociology ofmarkets and that allow one to get information or secure in doing so discuss what we know.Finally,we cutting edge technology.Because change is consider what the real differences of opinion ubiquitous,one chooses one's friends for their are and suggest avenues for future research. usefulness,and when that usefulness ends,one moves on. Finally,sociologists generally have a com- CONTEMPORARY ROOTS OF plicated relationship to the problem of THE SOCIOLOGY OF MARKETS whether a given set of social arrangements is Many good reviews have been written about efficient.The fact that so many kinds of so-the intellectual history of the sociology of cial relationships exist in markets has led to markets as a field(Biggart&Beamish 2003, the argument thatsocialrelationshipsexist be-Fourcade-Gourinchas 2007,Krippner 2001, tween market actors to solve market problems Lie 1997,Smelser Swedberg 1994,Trigilia such as agency costs(Fama Jensen 1983)2002).Our goal in this section is to put this 宝 and transaction costs(Williamson 1985)and literature together in a different way.Rather to promote trust between buyers and sell-than focusing on the roots of the sociology of ers.Some sociologists seem prepared to ac-markets in classical theory,we focus on the cept that social structures could be efficient contemporary fields of study that contributed (Baker 1984,Uzzi 1996).From this point of to the intellectual ferment around the soci- view,social structures in markets operate to ology of markets.In particular,we trace the 100c reduce information costs,give firms access to influence ofnearby fields on the different per- knowledge about what the competition is do- spectives in the sociology of markets. ing,allow market actors to trust one another, New fields of social inquiry are built in re- and reduce resource dependencies.These so-lation to other fields of social inquiry.When 夏 cial structures provide firms with information scholars working within one field find them- that allows them to learn and adapt and,in do-selves in a dialogue with scholars working ing so,compete effectively.But other scholars on similar problems in other fields,some- are agnostic on this question(Fligstein 1990,times a new field of inquiry is created.At Podolny 1993).For them,social structures the outset,new fields involve scholars bor- can operate to mitigate the effects of competi-rowing one another's perspectives and look- tion.In this view,firms try to control markets ing for mechanisms and models that might by using their size,technology,and access to help explain new objects of inquiry.In this governments to promote a status hierarchy of case,political economy,the sociology of la- incumbents and challengers.Incumbent firms bor markets,and organizational theory pio- use their advantages to signal to their princi-neered thinking about the sociology of mar- pal competitors what they will do to defend kets,and the cross-pollination ofideas in these the existing market order.For these scholars,fields formed the basic insights leading to the social structure of markets exists to pro-the establishment of the sociology of mar- duce this order.One way to make progress on kets as a field in its own right.Scholars in this issue is to problematize efficiency.The all these fields doubted that economics could sociology of markets gives us tools to decide sufficiently make sense of what happens in www.anmalreviews.org The Sociology of Markets 109
ANRV316-SO33-06 ARI 24 May 2007 10:6 in a market can collectively produce equilibrium, then the goal of actors in this market becomes the preservation of that order. This implies relationships of power and domination in markets. On the other hand, if firms are resigned to live in a world where reproducing one’s position is not possible, then social relationships become temporary arrangements that allow one to get information or secure cutting edge technology. Because change is ubiquitous, one chooses one’s friends for their usefulness, and when that usefulness ends, one moves on. Finally, sociologists generally have a complicated relationship to the problem of whether a given set of social arrangements is efficient. The fact that so many kinds of social relationships exist in markets has led to the argument that social relationships exist between market actors to solve market problems such as agency costs (Fama & Jensen 1983) and transaction costs (Williamson 1985) and to promote trust between buyers and sellers. Some sociologists seem prepared to accept that social structures could be efficient (Baker 1984, Uzzi 1996). From this point of view, social structures in markets operate to reduce information costs, give firms access to knowledge about what the competition is doing, allow market actors to trust one another, and reduce resource dependencies. These social structures provide firms with information that allows them to learn and adapt and, in doing so, compete effectively. But other scholars are agnostic on this question (Fligstein 1990, Podolny 1993). For them, social structures can operate to mitigate the effects of competition. In this view, firms try to control markets by using their size, technology, and access to governments to promote a status hierarchy of incumbents and challengers. Incumbent firms use their advantages to signal to their principal competitors what they will do to defend the existing market order. For these scholars, the social structure of markets exists to produce this order. One way to make progress on this issue is to problematize efficiency. The sociology of markets gives us tools to decide whether a particular set of social structures protects incumbents or, rather, fosters economic growth and competition. In this review, we discuss the intellectual roots of the sociology of markets and how the field evolved from problems posed in nearby fields. We then examine the crystallization of the major ideas in the sociology of markets and in doing so discuss what we know. Finally, we consider what the real differences of opinion are and suggest avenues for future research. CONTEMPORARY ROOTS OF THE SOCIOLOGY OF MARKETS Many good reviews have been written about the intellectual history of the sociology of markets as a field (Biggart & Beamish 2003, Fourcade-Gourinchas 2007, Krippner 2001, Lie 1997, Smelser & Swedberg 1994, Trigilia 2002). Our goal in this section is to put this literature together in a different way. Rather than focusing on the roots of the sociology of markets in classical theory, we focus on the contemporary fields of study that contributed to the intellectual ferment around the sociology of markets. In particular, we trace the influence of nearby fields on the different perspectives in the sociology of markets. New fields of social inquiry are built in relation to other fields of social inquiry. When scholars working within one field find themselves in a dialogue with scholars working on similar problems in other fields, sometimes a new field of inquiry is created. At the outset, new fields involve scholars borrowing one another’s perspectives and looking for mechanisms and models that might help explain new objects of inquiry. In this case, political economy, the sociology of labor markets, and organizational theory pioneered thinking about the sociology of markets, and the cross-pollination of ideas in these fields formed the basic insights leading to the establishment of the sociology of markets as a field in its own right. Scholars in all these fields doubted that economics could sufficiently make sense of what happens in www.annualreviews.org • The Sociology of Markets 109 Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
markets.In essence,they discovered that the ological convergence of institutions toward atomized,price-taking actors,with perfect Western models implied by the economic un- and symmetrical information assumed by neo- derpinnings in much of modernization theory classical theory,did not seem to exist empiri- led scholars to look into how the evolving in- cally.Social relations seemed to be crucial to stitutions of capitalism (laws,regulations,and the functioning of markets and market actors institutionalized practices)came to regulate in a myriad of ways.Although all these sub- the relationships between firms,owners,gov- fields began to criticize economics,they did ernments,and workers in ways that produced so from different perspectives and for differ- fundamental differences in the market struc- ent reasons,and the critiques internal to the tures of these societies. logics of these fields were the first moves to- As development projects took off,first in ward the creation ofa contemporary sociology Japan and then later in Taiwan and Korea, of markets.It is useful to understand these de- scholars delved into how local arrangements bates in order to make sense of the different between governments,economic elites,and theoretical voices in the sociology of markets. workers provided the conditions of economic Political economy in the 1960s was domi-growth in both developed and less developed nated by modernization theory.This perspec-societies (Amsden 1991;Aoki 1990;Dore tive sought to explain how economically un-1973,1987,1997;Evans 1995;Johnson 1982; derdeveloped countries might develop along Wade 1990).Meanwhile,the study of com- the lines of industrialized nations.Generally, parative capitalisms revealed that the rela- studies in this vein focused on how similar tionships between these groups showed re- cultural and structural features in develop-markable diversity and reflected very much ing nations,characterized as traditional,could a historical,cultural,and national trajectory be overcome with the emulation of institu- (Campbell et al.1991,Campbell Lindberg tional models extant in developed countries to 1990,Fligstein Choo 2005).This perspec- promote economic growth(Eisenstadt 1973,tive suggested that governments,workers,and Kerr 1960,Lerner Riesman 1963,Rostow capitalists produced market structures that 1961).Critiques of modernization theory in were different across countries(Albert 1993, political economy led researchers to new per- Berger Dore 1996,Boyer Drache 1996, spectives on development and comparative Hall Soskice 2001,Hollingsworth et al. capitalisms. 1994).Markets were not given by outsiders, Scholars in this field looked back to but instead reflected the social and politi- Polanyi's(1957)The Great Transformation for cal construction of each society,where the inspiration(see Block Evans 2005 for a re-history and culture surrounding class rela- view of the literature on the links between tions and the various kinds of interventions by states and markets).Polanyi argued not only governments produced unique institutional that the creation of markets required states, orders. but also that the formation of capitalist mar- Organizational theory,much of which was kets would produce social chaos.In response,centered in business schools,was concerned he suggested that governments would have with understanding how the managers of to intervene in markets to stabilize them firms read the demands of their environ- and to provide social protection for work-ments and adjust their organizational struc- ers and rules to guide the interactions be-tures in line with those contingencies(Miles tween groups of capitalists.The ways they 1980).Although managerial theory rejected did this would necessarily be contingent and some of the tenets of economics(March et al. implied that historical institutional variation 1958,Simon 1957),such as perfect informa- could help explain cross-national variation in tion and perfect rationality,the purpose of market structures.The rejection of the tele- the firm was still to adjust to the world of Fligstein·Dauter
ANRV316-SO33-06 ARI 24 May 2007 10:6 markets. In essence, they discovered that the atomized, price-taking actors, with perfect and symmetrical information assumed by neoclassical theory, did not seem to exist empirically. Social relations seemed to be crucial to the functioning of markets and market actors in a myriad of ways. Although all these sub- fields began to criticize economics, they did so from different perspectives and for different reasons, and the critiques internal to the logics of these fields were the first moves toward the creation of a contemporary sociology of markets. It is useful to understand these debates in order to make sense of the different theoretical voices in the sociology of markets. Political economy in the 1960s was dominated by modernization theory. This perspective sought to explain how economically underdeveloped countries might develop along the lines of industrialized nations. Generally, studies in this vein focused on how similar cultural and structural features in developing nations, characterized as traditional, could be overcome with the emulation of institutional models extant in developed countries to promote economic growth (Eisenstadt 1973, Kerr 1960, Lerner & Riesman 1963, Rostow 1961). Critiques of modernization theory in political economy led researchers to new perspectives on development and comparative capitalisms. Scholars in this field looked back to Polanyi’s (1957) The Great Transformation for inspiration (see Block & Evans 2005 for a review of the literature on the links between states and markets). Polanyi argued not only that the creation of markets required states, but also that the formation of capitalist markets would produce social chaos. In response, he suggested that governments would have to intervene in markets to stabilize them and to provide social protection for workers and rules to guide the interactions between groups of capitalists. The ways they did this would necessarily be contingent and implied that historical institutional variation could help explain cross-national variation in market structures. The rejection of the teleological convergence of institutions toward Western models implied by the economic underpinnings in much of modernization theory led scholars to look into how the evolving institutions of capitalism (laws, regulations, and institutionalized practices) came to regulate the relationships between firms, owners, governments, and workers in ways that produced fundamental differences in the market structures of these societies. As development projects took off, first in Japan and then later in Taiwan and Korea, scholars delved into how local arrangements between governments, economic elites, and workers provided the conditions of economic growth in both developed and less developed societies (Amsden 1991; Aoki 1990; Dore 1973, 1987, 1997; Evans 1995; Johnson 1982; Wade 1990). Meanwhile, the study of comparative capitalisms revealed that the relationships between these groups showed remarkable diversity and reflected very much a historical, cultural, and national trajectory (Campbell et al. 1991, Campbell & Lindberg 1990, Fligstein & Choo 2005). This perspective suggested that governments, workers, and capitalists produced market structures that were different across countries (Albert 1993, Berger & Dore 1996, Boyer & Drache 1996, Hall & Soskice 2001, Hollingsworth et al. 1994). Markets were not given by outsiders, but instead reflected the social and political construction of each society, where the history and culture surrounding class relations and the various kinds of interventions by governments produced unique institutional orders. Organizational theory, much of which was centered in business schools, was concerned with understanding how the managers of firms read the demands of their environments and adjust their organizational structures in line with those contingencies (Miles 1980). Although managerial theory rejected some of the tenets of economics (March et al. 1958, Simon 1957), such as perfect information and perfect rationality, the purpose of the firm was still to adjust to the world of 110 Fligstein · Dauter Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
competition,as economics implied.The cri- that sectors that join all interested parties look tique of management theory's focus on in- quite similar to the set of actors that po- ternal organizational processes led organiza- litical economy focuses on,i.e.,firms,gov- tional theorists in two directions. ernments,and workers.DiMaggio Powell Hannan Freeman (1977)argued that (1983)extended these arguments and called scholars had paid too much attention to such environments "organizational fields,"a adaptive processes in organizations.Instead,term that has caught on.The field metaphor they studied the emergence of organizational implies that firms watch one another,engage forms at the level of populations.They im-in strategic behavior vis-a-vis one another, plied that market opportunity brought for-and look to one another for clues as to what ward the birth of firms.But the character of constitutes successful behavior.DiMaggio the market,i.e.,the resources that could be Powell's main focus was how firms in organi- exploited by firms,would determine which zational fields came to resemble one another 3J0'SMOIA3IEnUUE MMM wO forms of organization would survive.The through processes of mimetic,coercive,and main problem that competition created for normative isomorphism. firms,from Hannan Freeman's perspective,In 1981,White produced a sociological was resource dependence(Pfeffer Salancik view of what he thought firms do in markets. 1978).Many firms could not get the resources His central argument was that firms in pro- 'OO u they needed to survive,and this led to high duction markets position their organizations rates of failure at the beginning of market vis-a-vis one another.Using the price and rel- opening projects.Despite population ecol-ative quality of their product,they signal to ogy's focus on competition,scholars in this each other what kind of producer they want to field realized that the formation of market be.This signaling produces what White called boundaries was a social process and that the a market that he defined as a reproducible formation of niches often reflected the ability role structure.White's view combines some of firms to segregate their markets(Carroll insights from economics about how price can 1985,Hannan Freeman 1988).Firms de-be used as a signal(Spence 1974)with the or- 1002 pend on legitimacy,and external shocks to a ganizational sociology focus on the construc- niche,such as the introduction of a law,can tion of fields or niches. have a profound effect on the dynamics of a While organizational scholars examined niche (Ranger-Moore et al.1991,Ingram social processes structuring the relationships Rao 2004,Haveman Rao 1997).Recently,between organizations,scholars in stratifica- ecologists have begun to focus on how firms tion and labor markets looked anew at the role form identities and how these identities form of firms in resource distribution.During the markets(Carroll Swaminathan 2000). 1960s and 1970s,the main approach sociol- While population ecology viewed the en- ogists used to examine labor markets was the vironment of the firm as“hard,”and thus the status attainment model.This view focused on main mechanism of selection was the avail-how individuals were sorted into a relatively ability of the scarcest resource,institutional fixed set of positions according to their per- theory posited that the environment was at sonal characteristics,such as family origins, least partially a social construction.Scott education,gender,and race(Blau Duncan Meyer(1982)called such environments "sec-1967,Hauser Featherman 1977).Because tors"and described the socially constructed the status attainment model views the linkages environment of firms as a function of all the between individuals and their socioeconomic other organizations that might impinge on a outcomes as mainly a function of their per- particular organization.They included gov- sonal characteristics,the problem of the de- ernments,suppliers,workers,and customers mand for labor,and thus the role of the firm, as part of such a social construction.We note was outside its purview. www.annualreviews.org The Sociology of Markets
ANRV316-SO33-06 ARI 24 May 2007 10:6 competition, as economics implied. The critique of management theory’s focus on internal organizational processes led organizational theorists in two directions. Hannan & Freeman (1977) argued that scholars had paid too much attention to adaptive processes in organizations. Instead, they studied the emergence of organizational forms at the level of populations. They implied that market opportunity brought forward the birth of firms. But the character of the market, i.e., the resources that could be exploited by firms, would determine which forms of organization would survive. The main problem that competition created for firms, from Hannan & Freeman’s perspective, was resource dependence (Pfeffer & Salancik 1978). Many firms could not get the resources they needed to survive, and this led to high rates of failure at the beginning of market opening projects. Despite population ecology’s focus on competition, scholars in this field realized that the formation of market boundaries was a social process and that the formation of niches often reflected the ability of firms to segregate their markets (Carroll 1985, Hannan & Freeman 1988). Firms depend on legitimacy, and external shocks to a niche, such as the introduction of a law, can have a profound effect on the dynamics of a niche (Ranger-Moore et al. 1991, Ingram & Rao 2004, Haveman & Rao 1997). Recently, ecologists have begun to focus on how firms form identities and how these identities form markets (Carroll & Swaminathan 2000). While population ecology viewed the environment of the firm as “hard,” and thus the main mechanism of selection was the availability of the scarcest resource, institutional theory posited that the environment was at least partially a social construction. Scott & Meyer (1982) called such environments “sectors” and described the socially constructed environment of firms as a function of all the other organizations that might impinge on a particular organization. They included governments, suppliers, workers, and customers as part of such a social construction. We note that sectors that join all interested parties look quite similar to the set of actors that political economy focuses on, i.e., firms, governments, and workers. DiMaggio & Powell (1983) extended these arguments and called such environments “organizational fields,” a term that has caught on. The field metaphor implies that firms watch one another, engage in strategic behavior vis-a-vis one another, ` and look to one another for clues as to what constitutes successful behavior. DiMaggio & Powell’s main focus was how firms in organizational fields came to resemble one another through processes of mimetic, coercive, and normative isomorphism. In 1981, White produced a sociological view of what he thought firms do in markets. His central argument was that firms in production markets position their organizations vis-a-vis one another. Using the price and rel- ` ative quality of their product, they signal to each other what kind of producer they want to be. This signaling produces what White called a market that he defined as a reproducible role structure. White’s view combines some insights from economics about how price can be used as a signal (Spence 1974) with the organizational sociology focus on the construction of fields or niches. While organizational scholars examined social processes structuring the relationships between organizations, scholars in stratification and labor markets looked anew at the role of firms in resource distribution. During the 1960s and 1970s, the main approach sociologists used to examine labor markets was the status attainment model. This view focused on how individuals were sorted into a relatively fixed set of positions according to their personal characteristics, such as family origins, education, gender, and race (Blau & Duncan 1967, Hauser & Featherman 1977). Because the status attainment model views the linkages between individuals and their socioeconomic outcomes as mainly a function of their personal characteristics, the problem of the demand for labor, and thus the role of the firm, was outside its purview. www.annualreviews.org • The Sociology of Markets 111 Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
During the 1970s,scholars became in- What began next was an exploration of terested in two other questions:How does product and labor markets.Scholars studied the structure of jobs affect individual mo- concrete cases and attempted to apply these bility patterns and what is the actual pro- tools to account for what had emerged.The cess through which people are matched to sociology of markets has been used to ex- jobs?Sociologists answered these questions plain many aspects of markets.Some scholars by considering the role of firms in the hir- have demonstrated how the social relation- ing process and social relationships in the ships in markets produce more stable prices matching process.The new structuralism (Baker 1984,Uzzi 1997,Uzzi Lancaster modeled how firms affect the distribution of 2004).Others have focused on how the social rewards(Baron Bielby 1980,Hodson 1983,structuring of markets has affected the birth Kalleberg Griffin 1980).White's (1970) and death of small firms(Stuart et al.1999, Chains of Opportunity elaborated how vacancy Stuart Sorenson 2003).Still others have chains of jobs helped produce the distribu- observed the innovation and spread of new tion of workers and rewards.Granovetter's market strategies such as new products,finan- (1974)Getting a Tob took on the question of cial innovations,or changes in organizations how people got matched to jobs.He intro-such as the diversification of products,geo- duced the idea that social networks mediate graphic expansion,and vertical integration,as the links between employers and employees. well as changes in which subunit controls the Both White and Granovetter championed firm(Ahmadjian Robinson 2001;Beckman network analysis as a way to understand et al.2002;Davis 1991;Davis et al.1994;Fiss the social structure linking employers and Zajac 2004;Fligstein 1985,1991;Gulati employees. Westphal 1999;Haunschild 1993;Hirsch 1986;Ocasio Kim 1999;Westphal Zajac 1998;Zom2004;Zuckerman1999,2000). AGREEMENTS IN THE The exploration of all possible link- SOCIOLOGY OF MARKETS ages between firms,suppliers,customers, At the core of the sociology of markets is the governments,and workers pushed scholars attempt to insert sociologists into the study to postulate a plethora of mechanisms for of the economic realm by bringing social the- embeddedness.The literature groped with ory and the way social life works in general trying to generalize these cases and began to into firms,markets,and industries.As our re- elaborate different ways of thinking about the view suggests,the theoretical pieces for the problem of the social embeddedness of mar- construction of the sociology of markets were kets.Krippner(2001)has argued that the term in place by 1983.Firms,the social structures embeddedness has become vaguely defined. that defined their relationships to competi- We argue that this was the case from the very tors,and the social structures that linked them beginning.Scholars who were coming at the to suppliers,customers,workers,and govern-problem from very different points of view ments were already theorized to exist and to examined different ways in which economic vary across markets,historical time periods,transactions were socially structured. and countries.Granovetter's declaration that The variety of approaches has made pro- economic life was always embedded in social viding a sociological definition for markets life has proven to be the intellectual frame that difficult.For neoclassical theory,markets justified opening a floodgate of research and simply imply exchange between actors for brought a massive set of scholars armed with goods or services.These exchanges are usu- sociological ideas into studying market activ- ally thought to be fleeting,with price (i.e., ity and,even more importantly,engaging one the amount of a commodity that is exchanged another in discourse. for another using a generalized medium of 12 ligstein·Dauter
ANRV316-SO33-06 ARI 24 May 2007 10:6 During the 1970s, scholars became interested in two other questions: How does the structure of jobs affect individual mobility patterns and what is the actual process through which people are matched to jobs? Sociologists answered these questions by considering the role of firms in the hiring process and social relationships in the matching process. The new structuralism modeled how firms affect the distribution of rewards (Baron & Bielby 1980, Hodson 1983, Kalleberg & Griffin 1980). White’s (1970) Chains of Opportunity elaborated how vacancy chains of jobs helped produce the distribution of workers and rewards. Granovetter’s (1974) Getting a Job took on the question of how people got matched to jobs. He introduced the idea that social networks mediate the links between employers and employees. Both White and Granovetter championed network analysis as a way to understand the social structure linking employers and employees. AGREEMENTS IN THE SOCIOLOGY OF MARKETS At the core of the sociology of markets is the attempt to insert sociologists into the study of the economic realm by bringing social theory and the way social life works in general into firms, markets, and industries. As our review suggests, the theoretical pieces for the construction of the sociology of markets were in place by 1983. Firms, the social structures that defined their relationships to competitors, and the social structures that linked them to suppliers, customers, workers, and governments were already theorized to exist and to vary across markets, historical time periods, and countries. Granovetter’s declaration that economic life was always embedded in social life has proven to be the intellectual frame that justified opening a floodgate of research and brought a massive set of scholars armed with sociological ideas into studying market activity and, even more importantly, engaging one another in discourse. What began next was an exploration of product and labor markets. Scholars studied concrete cases and attempted to apply these tools to account for what had emerged. The sociology of markets has been used to explain many aspects of markets. Some scholars have demonstrated how the social relationships in markets produce more stable prices (Baker 1984, Uzzi 1997, Uzzi & Lancaster 2004). Others have focused on how the social structuring of markets has affected the birth and death of small firms (Stuart et al. 1999, Stuart & Sorenson 2003). Still others have observed the innovation and spread of new market strategies such as new products, financial innovations, or changes in organizations such as the diversification of products, geographic expansion, and vertical integration, as well as changes in which subunit controls the firm (Ahmadjian & Robinson 2001; Beckman et al. 2002; Davis 1991; Davis et al. 1994; Fiss & Zajac 2004; Fligstein 1985, 1991; Gulati & Westphal 1999; Haunschild 1993; Hirsch 1986; Ocasio & Kim 1999; Westphal & Zajac 1998; Zorn 2004; Zuckerman 1999, 2000). The exploration of all possible linkages between firms, suppliers, customers, governments, and workers pushed scholars to postulate a plethora of mechanisms for embeddedness. The literature groped with trying to generalize these cases and began to elaborate different ways of thinking about the problem of the social embeddedness of markets. Krippner (2001) has argued that the term embeddedness has become vaguely defined. We argue that this was the case from the very beginning. Scholars who were coming at the problem from very different points of view examined different ways in which economic transactions were socially structured. The variety of approaches has made providing a sociological definition for markets difficult. For neoclassical theory, markets simply imply exchange between actors for goods or services. These exchanges are usually thought to be fleeting, with price (i.e., the amount of a commodity that is exchanged for another using a generalized medium of 112 Fligstein · Dauter Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
exchange,ie.,money)determined by the sup- repeated exchanges occur between buyers and ply and demand for the commodity.From the sellers under a set of formal and informal point of view of the sociology of markets,the rules governing relations between competi- problem is that this type of exchange already tors,suppliers,and customers.+These fields shows a great deal of social structure.Mar-operate according to local understandings and ket actors have to find one another.Money formal and informal rules and conventions has to exist to allow market actors to get be-that guide interaction,facilitate trade,define yond bartering nonequivalent goods.Actors what products are produced,indeed are con- have to know what the price is.Underlying stitutive of products,and provide stability for all exchange is that both buyers and sellers buyers,sellers,and producers.These market- have faith that they will not be cheated.Such places are dependent on governments,laws, faith often implies informal (i.e.,personal and larger cultural understandings support- knowledge of the buyer or seller)and formal ing market activity.The first thing a sociol- 3JO'SMOIA3IEnuue Ajuo asn mechanisms(i.e.,law)that govern exchange.ogy of markets suggests is that market actors euosiad Furthermore,market actors are often organi- will develop social structures to mediate the zations,implying that organizational dynam-problems they encounter in exchange,com- 豆 ics influence market structures.For sociolo- petition,and production.We discuss each of gists,market exchange implies a whole back-these in turn and delineate the primary contri- drop of social arrangements that economics butions ofeach perspective with regard to how does not even begin to hint at. market actors solve these problems and,in do- But the sociology of markets goes further ing so,construct and navigate their worlds. 宝 than just questioning the institutional embed- Many aspects of exchange relationships dedness of an anonymous market.It is pre-in markets have been examined by sociolo- pared to unpack the black boxes of exchange,gists.Institutional theory suggests not only 尊 competition,and production.Sociologists be-that contractual market exchange depends gin by realizing that market actors are in-on the rule setting and sanction enforce- volved in day-to-day social relationships with ment of states,but also that states may de- one another,relationships based on trust,fine what types of products are appropriate friendship,power,and dependence.For the for exchange.Furthermore,theinternalstruc- modern sociology of markets (Durkheim ture of the state as rule setter and regulator 1964)3,unstructured,haphazard,one-shot,can influence the types of products states al- anonymous social exchange is not a market.low to be exchanged and the rules support- Instead,markets imply social spaces where ing and surrounding exchange(Carruthers Halliday 1998,Delaney 1992,Schneiberg Soule 2005).Buyers and sellers also are gener- Ironically,scholars of the sociology of markets almost ally known to one another and in many cases never cite Durkheim.But a good case can be made that are involved in repeated exchange.Network almost all of the important ideas in the sociology of mar- kets have Durkheimian roots.Durkheim recognized the theorists have emphasized the role that so- pivotal role of the state and law in capitalist exchange,pre- cial networks play in generating trust between figuring the political economy concern with these issues. buyers and sellers that makes exchange possi- He also recognized that there was a noncontractual basis to contract that implied that personal relationships were ble (Granovetter 1985).Cultural sociologists necessary for people to honor contracts.Finally,in the di- have looked at how specific exchange relations vision of labor the major mechanism that drove modern society was competition.Durkheim's argument was that people divided up tasks to lessen their competition with other people.This mechanism is arguably at the core of +Of course,some of the identities of the buyers and sellers the population ecology view that market niches become change over time.In addition,more peripheral buyers and partitioned by competition and White's arguments about sellers come into the market,leave,and do not return.But how firms avoid competition by signaling which part of the the core players in the market,the largest producers and market they will produce for. consumers,create a social structure. www.annualreviews.org The Sociology of Markets 1I3
ANRV316-SO33-06 ARI 24 May 2007 10:6 exchange, i.e., money) determined by the supply and demand for the commodity. From the point of view of the sociology of markets, the problem is that this type of exchange already shows a great deal of social structure. Market actors have to find one another. Money has to exist to allow market actors to get beyond bartering nonequivalent goods. Actors have to know what the price is. Underlying all exchange is that both buyers and sellers have faith that they will not be cheated. Such faith often implies informal (i.e., personal knowledge of the buyer or seller) and formal mechanisms (i.e., law) that govern exchange. Furthermore, market actors are often organizations, implying that organizational dynamics influence market structures. For sociologists, market exchange implies a whole backdrop of social arrangements that economics does not even begin to hint at. But the sociology of markets goes further than just questioning the institutional embeddedness of an anonymous market. It is prepared to unpack the black boxes of exchange, competition, and production. Sociologists begin by realizing that market actors are involved in day-to-day social relationships with one another, relationships based on trust, friendship, power, and dependence. For the modern sociology of markets (Durkheim 1964)3, unstructured, haphazard, one-shot, anonymous social exchange is not a market. Instead, markets imply social spaces where 3Ironically, scholars of the sociology of markets almost never cite Durkheim. But a good case can be made that almost all of the important ideas in the sociology of markets have Durkheimian roots. Durkheim recognized the pivotal role of the state and law in capitalist exchange, pre- figuring the political economy concern with these issues. He also recognized that there was a noncontractual basis to contract that implied that personal relationships were necessary for people to honor contracts. Finally, in the division of labor the major mechanism that drove modern society was competition. Durkheim’s argument was that people divided up tasks to lessen their competition with other people. This mechanism is arguably at the core of the population ecology view that market niches become partitioned by competition and White’s arguments about how firms avoid competition by signaling which part of the market they will produce for. repeated exchanges occur between buyers and sellers under a set of formal and informal rules governing relations between competitors, suppliers, and customers.4 These fields operate according to local understandings and formal and informal rules and conventions that guide interaction, facilitate trade, define what products are produced, indeed are constitutive of products, and provide stability for buyers, sellers, and producers. These marketplaces are dependent on governments, laws, and larger cultural understandings supporting market activity. The first thing a sociology of markets suggests is that market actors will develop social structures to mediate the problems they encounter in exchange, competition, and production. We discuss each of these in turn and delineate the primary contributions of each perspective with regard to how market actors solve these problems and, in doing so, construct and navigate their worlds. Many aspects of exchange relationships in markets have been examined by sociologists. Institutional theory suggests not only that contractual market exchange depends on the rule setting and sanction enforcement of states, but also that states may de- fine what types of products are appropriate for exchange. Furthermore, the internal structure of the state as rule setter and regulator can influence the types of products states allow to be exchanged and the rules supporting and surrounding exchange (Carruthers & Halliday 1998, Delaney 1992, Schneiberg & Soule 2005). Buyers and sellers also are generally known to one another and in many cases are involved in repeated exchange. Network theorists have emphasized the role that social networks play in generating trust between buyers and sellers that makes exchange possible (Granovetter 1985). Cultural sociologists have looked at how specific exchange relations 4Of course, some of the identities of the buyers and sellers change over time. In addition, more peripheral buyers and sellers come into the market, leave, and do not return. But the core players in the market, the largest producers and consumers, create a social structure. www.annualreviews.org • The Sociology of Markets 113 Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only
are deeply constructed by the cultural mean- also be a way to coopt such dependence.Burt ings behind the products being bought and (1980a)demonstrates how American corpo- sold(Zelizer 1983).Finally,sociologists gen- rations use board membership strategically to erally believe that power influences social re- bring on representatives of firms upon whom lations and,thus,market relations(Pfeffer a particular firm is dependent for resources. Salancik 1978).Relationships ofexchange can Stuart et al.(1999)demonstrate that getting be deeply influenced by the relative power of money from the right venture capitalists af- the actors over the supply and demand of what fects the probability that a particular firm sur- is being exchanged and by their relative de- vives.They interpret such connections as not pendence on what is being exchanged.This just about securing funding but also about conception of power in markets is generally conferring legitimacy upon a particular start- referred to as resource dependence and has up firm and thereby allowingit to be more able been described and employed in a variety of to secure workers and customers.In essence, ways by many sociologists. one purpose of the ties between suppliers and Resource dependence is a general con-customers is to control resource dependence struct used in the sociology of markets.The and enhance the probability of a firm sur- idea begins with the premise that in any social viving.Here,network theorists are rooted in exchange,one side of the exchange may be the more general camp of both population more dependent on what is being exchanged ecology and institutional theory by worrying than the other (Emerson 1962).If one party about how resource dependence affects the le- to the exchange was much more dependent gitimacy and survival of firms. than the other,that party was either more Network theorists and experimental social likely to have to obey the dictates of the sup- psychologists posit one additional mechanism plier/customer or else face extinction.This that links buyers and sellers:trust(Cheshire idea has great generality when it comes to Cook 2004;Granovetter 1985,2005;Kollock examining exchange.So,for example,firms 1994,1999;Uzzi 1996;Yamigushi Cook must obtain finance,secure inputs for their 1993).Granovetter's main argument about products and labor,and establish relationships embeddedness is that if one has close ties to to their competitors,governments,and cus- others over long periods of time,one can trust tomers.The empirical literature has shown that in any particular transaction,people are that who might have the power in these rela-less likely to try to cheat one another.The tionships varies on the basis of the nature of experimental literature has shown that trust the resource dependency and the particular matters most in situations in which there is a market being studied. great deal of uncertainty about the qualities Although many scholars who have stud- of the product being exchanged (Cheshire ied exchange interactions have focused on us- Cook 2004,Kollock 1994).Kollock (1999)has ing network methods,they frequently posit examined how reputation works as a way to in- mechanisms that involve resource depen-crease trust between actors.Although trust is dence.For example,Lincoln etal.(1996)show not a major mechanism in either population how the ownership linkages between Japanese ecology or institutional theory,it does connect firms affect the ability of the owner firms to back to those theories.Judging the trustwor- dictate actions to their subsidiaries.Forming thiness of another actor is not just a matter relationships to one's principal suppliers can of having a long-term network tie to them. Trust is also about power and resource de- pendence.Firms work to reduce uncertainty 5Note that in ncoclassical economics,exchange is assumed and resource dependence by choosing part- to be equal.If buyers and sellers have perfect information about prices,then buyers will not pay more than they need ners who they either know to be reliable or to and sellers cannot ask more. others think are reliable. Fligstein·Dauter
ANRV316-SO33-06 ARI 24 May 2007 10:6 are deeply constructed by the cultural meanings behind the products being bought and sold (Zelizer 1983). Finally, sociologists generally believe that power influences social relations and, thus, market relations (Pfeffer & Salancik 1978). Relationships of exchange can be deeply influenced by the relative power of the actors over the supply and demand of what is being exchanged and by their relative dependence on what is being exchanged. This conception of power in markets is generally referred to as resource dependence and has been described and employed in a variety of ways by many sociologists. Resource dependence is a general construct used in the sociology of markets. The idea begins with the premise that in any social exchange, one side of the exchange may be more dependent on what is being exchanged than the other (Emerson 1962). If one party to the exchange was much more dependent than the other, that party was either more likely to have to obey the dictates of the supplier/customer or else face extinction.5 This idea has great generality when it comes to examining exchange. So, for example, firms must obtain finance, secure inputs for their products and labor, and establish relationships to their competitors, governments, and customers. The empirical literature has shown that who might have the power in these relationships varies on the basis of the nature of the resource dependency and the particular market being studied. Although many scholars who have studied exchange interactions have focused on using network methods, they frequently posit mechanisms that involve resource dependence. For example, Lincoln et al. (1996) show how the ownership linkages between Japanese firms affect the ability of the owner firms to dictate actions to their subsidiaries. Forming relationships to one’s principal suppliers can 5Note that in neoclassical economics, exchange is assumed to be equal. If buyers and sellers have perfect information about prices, then buyers will not pay more than they need to and sellers cannot ask more. also be a way to coopt such dependence. Burt (1980a) demonstrates how American corporations use board membership strategically to bring on representatives of firms upon whom a particular firm is dependent for resources. Stuart et al. (1999) demonstrate that getting money from the right venture capitalists affects the probability that a particular firm survives. They interpret such connections as not just about securing funding but also about conferring legitimacy upon a particular startup firm and thereby allowing it to be more able to secure workers and customers. In essence, one purpose of the ties between suppliers and customers is to control resource dependence and enhance the probability of a firm surviving. Here, network theorists are rooted in the more general camp of both population ecology and institutional theory by worrying about how resource dependence affects the legitimacy and survival of firms. Network theorists and experimental social psychologists posit one additional mechanism that links buyers and sellers: trust (Cheshire & Cook 2004; Granovetter 1985, 2005; Kollock 1994, 1999; Uzzi 1996; Yamigushi & Cook 1993). Granovetter’s main argument about embeddedness is that if one has close ties to others over long periods of time, one can trust that in any particular transaction, people are less likely to try to cheat one another. The experimental literature has shown that trust matters most in situations in which there is a great deal of uncertainty about the qualities of the product being exchanged (Cheshire & Cook 2004, Kollock 1994). Kollock (1999) has examined how reputation works as a way to increase trust between actors. Although trust is not a major mechanism in either population ecology or institutional theory, it does connect back to those theories. Judging the trustworthiness of another actor is not just a matter of having a long-term network tie to them. Trust is also about power and resource dependence. Firms work to reduce uncertainty and resource dependence by choosing partners who they either know to be reliable or others think are reliable. 114 Fligstein · Dauter Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only